Why Do Real Estate Agents & Brokers Get Sued?

Real estate can be a fast-paced, engaging, and exciting field to work in. Most real estate transactions are happy events, with sellers finding the right buyer and buyers making happy homes for years to come. However, there are some instances in which clients may be left dissatisfied with the outcomes, or believe that the agent they worked with was negligent in some way. In fact, a 2018 survey revealed that about a quarter of all homebuyers say they wouldn’t recommend or work with their Realtor again.

Even if the real estate agent or broker did nothing wrong, sometimes a few clients will end up filing lawsuits against their real estate agent, claiming professional negligence, breach of contract, or other allegations.

Do Real Estate Agents & Brokers Really Get Sued?

In short, yes: Real estate agents and brokers can get sued. As the professional who facilitates many parts of the real estate transaction, an agent takes on a lot of responsibility in their day-to-day dealings — and that, naturally, opens them up to significant liability. Everything from listing the property to showing it and arranging for closings has the potential for great pitfalls, and sometimes these tasks result in a lawsuit filed against an agent.

The Most Common Reasons Why Agents & Brokers Get Sued

Dissatisfied clients may decide to pursue legal action at nearly any point during their business relationship with a real estate agent -- and sometimes even afterward. Here are some common reasons why agents get sued, including several instances reported by legal resources HG.com and MoneyCrashers.com.

Reason #1: Misrepresentation or Fraud

Examples of misrepresentation in real estate and fraud cases involve situations where clients feel that they were lied to or deceived by their agent regarding important property details. When agents are accused of misrepresentation, it’s often because the buyer believes that the agent gave them inaccurate information about the physical features or boundaries of the property, writes Attorney ChristopherCoble. In cases of fraud, he says, the buyer may believe that the agent deliberately lied to them.

Reason #2: Breach of Duty

Examples of breach of duty in real estate can vary widely. When a client alleges breach of duty, it’s because they feel that the agent broke their trust, whether by revealing personal information, arranging a deal that benefitted themselves, or mismanaging funds.

Reason #3: Giving Legal Advice

Experienced agents know a lot about real estate law. However, they aren’t attorneys, so giving unauthorized legal advice about taxes and related topics can be problematic if a client relies on an agent regarding legal matters instead of their lawyer.

Reason #4: Negligence

Agents are human and, therefore, may make mistakes. Since real estate transactions are particularly complicated and involve a lot of steps, the risk of making an error is even higher. Real estate agents can be sued for negligence if they make a mistake handling paperwork or miss a deadline that causes their client to lose money. According to real estate professional Ronald R. Rossi, negligence is one of the biggest hazards for agents.

Reason #5: Breach of Contract

When a seller of a home hires a real estate agent, they sign a listing agreement, which is a legally binding document. These contracts usually set out what the agent or broker promises to do to help their clients sell their property. This can include things like what the agent will do to sell the house in terms of marketing, open houses, and showings. If a client believes that the agent didn’t do exactly what was expected under the contract, they could sue for breach of contract.

Reason #6: Not Protecting Client Data

As a real estate pro, you have access to a great deal of your client’s financial and personal data. You also have a professional responsibility to safeguard it. If you send sensitive client information to the wrong party, for example, you could be sued for failure to protect that information.

Reason #7: Bodily Injury or Property Damage

If a client or a visitor sustains an injury or damages someone’s property while on that property, the agent could be held legally responsible. This also includes responsibility for any injury or damage that is caused by an agent’s failure to properly secure a lock box.

Reason #8: Collusion

Claims of collusion are generally based on the idea that the buyer’s and seller’s real estate agents are working together for their joint benefit at the expense of the buyer or the seller. This is very similar to the “breach of duty” lawsuit in Reason #2. The agents for the buyer and the seller have a duty to work solely for the benefit of each of their clients.

4 Real-Life Examples of Real Estate Lawsuit Cases

Beyond the agent and broker, a lawsuit may also include banks and other real estate professionals, lumping you all into one big claim. Here’s a quick look at some recent cases in which real estate agents and brokers were sued (and considerable legal expenses were paid to defend them).

An Ohio couple bought a foreclosed home in Minnesota “as is” and sight unseen. When they arrived at their new property, they were surprised to find issues like mold and less lake frontage than what had been advertised in the listing. They sued the bank that owned the property, as well as the broker who sold it, claiming fraudulent misrepresentation. The plaintiffs lost the case and appealed the decision, but the appellate court ruled in favor of the bank and broker.

A client alleged that his broker provided him with inaccurate advice regarding the sale of his Washington, D.C., property, purchased as an investment in 2000 and re-listed in 2010. The client claimed that that advice ended up costing him nearly $100,000 in capital gains taxes. He sued the broker for breach of contract, negligent misrepresentation, and breach of fiduciary duty. The broker moved to have the case dismissed. A U.S. District Court dismissed the claims of breach of contract and breach of fiduciary duty, but ruled that the suit alleging negligent misrepresentation could proceed. In September 2014, the claim of negligent misrepresentation was dismissed for lack of jurisdiction.

During a walk-through of a property, a prospective California homebuyer stepped onto the diving board over an empty pool and it collapsed. He sued, claiming that the broker had a duty to warn him against the action. An appellate court ruled in favor of the broker because the danger would be obvious to a reasonable person. The broker didn’t in any way ask the buyer to stand on the diving board, and the MLS listing included a note about using caution near the empty pool.

A buyer and seller in California were both represented by Coldwell Banker agents. To do this, Coldwell Banker acted through its associate license to function as a dual agent. The buyer later sued the seller’s agent, as well as Coldwell Banker, over the amount of square footage represented on the marketing materials. Alleging breach of fiduciary duty, he claimed that they should have made more of an effort to reveal the discrepancy between the square footage advertised versus what was publicly recorded. (There was a difference of 5,000 square feet.) The 2012 trial court exonerated the seller’s agent and Coldwell Banker. However, an appellate court overturned that ruling. In 2016, the case went to California’s Supreme Court, which ruled in favor of the plaintiff.

What Can You Do To Avoid Getting Sued?

While there are no guarantees in life, there are common-sense things that many real estate agents and brokers can to do protect themselves and decrease the likelihood of getting sued by a client.

What Can You Do as an Agent?

Agents are on the front lines of the real estate industry, interacting with prospective buyers and sellers on a very regular basis. Here are some tips offered by Realtor Magazine, plus a few things other agents suggest to ensure good communication with clients:

Document any issues you notice with a property you’re showing. Date and initial the document, and ask your client to do the same.

Direct clients with legal and financial questions to professionals in those fields.

Always be upfront and honest in your communication with clients. Disengage with partners and associates who may not be as transparent.

Review contracts with clients carefully to make sure that they understand what they’re signing and that you’re both on the same page. Use the appropriate disclosure forms.

Maintain good information security practices, from updating computer software regularly to making sure you don’t leave clients’ information out in the open. Another easy thing you can do is practice strong password habits. Visit the National Cyber Security Alliance (NCSA) for more helpful hints.

What Can You Do as a Broker?

While brokers may have a slightly different role in most real estate transactions, they, too, can be subject to lawsuits, including allegations of professional negligence, agents’ breach of contract, and more. Here are some steps brokers may take to reduce the potential for damage to their businesses and their careers:

Develop and maintain good written policies and procedures for your agents to follow.

Ensure continuing education requirements are met for all of your agents, and maintain good records related to agents’ professional qualifications, licensing, and training.

Maintain up-to-date data management and security protocols and procedures, and make sure to train your agents to follow them.

No one likes to think about getting sued, but it’s a valid professional concern. Taking steps to protect yourself can minimize the chances of it happening, but there’s no guarantee that lawsuits won’t happen. Learn about all the risk management strategies available, from using NAR ombudsman services for early conflict resolution to safer business practices that protect agents and brokers.

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The views expressed in this article are those of the author and do not necessarily reflect those of Berxi™ or Berkshire Hathaway Specialty Insurance Company. This article (subject to change without notice) is for informational purposes only, and does not constitute professional advice.